Microsoft Licensing Implications for Cloud Migration
Migrating workloads to the cloud is a major trend for organizations looking for agility and scalability.
However, moving Microsoft software to cloud platforms like Azure, AWS, or Google Cloud (GCP) brings licensing implications that must be carefully considered. Cloud migration can change how you license Windows, SQL, and other Microsoft products.
Some on-premises licenses can be repurposed in the cloud (often with cost-saving benefits), while others are not portable due to vendor restrictions.
In this article, we’ll explore the key licensing considerations when migrating Microsoft workloads to public cloud services, highlight common pitfalls (especially around bring-your-own-license, or BYOL, scenarios), and outline strategies to stay compliant and cost-efficient in Azure, Amazon Web Services, and Google Cloud Platform.
Bring Your Own License (BYOL) vs. Cloud-Provided Licensing
Cloud providers offer two main ways to license Microsoft software in their environments:
- Provider-Included Licensing: In this model, the cloud provider (Microsoft, Amazon, Google, etc.) includes the cost of the Microsoft license in the hourly VM pricing. For example, when you launch a Windows Server VM in Azure or AWS, you can choose an image that is “Windows Server – License Included.” You then pay a higher per-hour rate for that VM, which covers the OS license (and possibly CAL equivalents for that usage). This is simple – you don’t need any existing licenses, and the provider is responsible for paying Microsoft. This approach might also be required in certain cases (as we’ll see) due to licensing rules.
- Bring Your Own License (BYOL): In a BYOL scenario, you take licenses you already own (typically from on-premises volume licensing agreements with Software Assurance, or equivalent subscriptions) and apply them to cloud instances. The cloud VM is then billed at a lower “base” compute rate because you’re not paying the markup for the license. Microsoft enables this in Azure through the Azure Hybrid Benefit program, and other clouds allow it for certain products under specific conditions (commonly referred to as License Mobility or BYOL images).
Choosing between these models depends on your licenses, the cost difference, and Microsoft’s rules about portability. Azure Hybrid Benefit, for instance, can substantially reduce costs if you have existing Windows Server or SQL Server licenses with Software Assurance – you can use those licenses in Azure and pay only for the underlying VM compute. On AWS/GCP, BYOL is possible but subject to more restrictions due to Microsoft’s licensing changes in recent years.
Azure: Microsoft’s Home Turf
As expected, Microsoft Azure offers the most straightforward and flexible options for migrating Microsoft licenses:
- Azure Hybrid Benefit (AHB): This program allows you to use your on-premises licenses for Windows Server, SQL Server, and a few other products in Azure, avoiding double-paying. For Windows Server, if you have Datacenter licenses with active Software Assurance, you can assign those licenses to Azure VMs (and those licenses also allow you to keep using them on-prem simultaneously for 180 days during migration). For each 2-processor or 16-core license, you can run a certain number of VM cores in Azure (for example, one Standard Datacenter 16-core license lets you run up to 16 cores of Windows VMs in Azure). Similarly, for SQL Server, AHB allows you to use your SQL licenses in Azure VMs or even Azure SQL managed services, often yielding up to 30-50% cost savings on Azure’s rates.
- Unlimited Virtualization Benefit on Azure: If you have SQL Server Enterprise with SA and you use AHB on Azure, Microsoft allows an “unlimited virtualization” benefit where you can run any number of SQL Server instances on a given Azure VM host (specifically on Azure Dedicated Hosts or Azure VMs in certain scenarios) without needing to license each VM’s cores separately – analogous to how it works on-prem. Essentially, Azure is an extension of your SA rights.
- Azure Dedicated Host: Azure offers a service where an entire physical server is dedicated to you. This is useful for BYOL because it can satisfy licensing requirements for products that normally can’t be used on shared cloud hardware. For example, Windows Server BYOL on non-Azure clouds is typically restricted unless it’s on dedicated hardware (due to Microsoft’s rules). On Azure Dedicated Host, you can bring older licenses or those without Software Assurance more freely because Microsoft treats it as on-prem hardware from a licensing perspective.
- No License Mobility Needed for Windows on Azure: Historically, Windows Server did not have mobility rights to third-party clouds without Software Assurance and special rules. On Azure, Microsoft allows even standard license assignments via AHB. Azure is simply more permissive for Microsoft products (for competitive reasons). Some Azure services (like Azure Virtual Desktop) have unique licensing arrangements if you have Microsoft 365 licenses.
AWS and GCP: BYOL with Restrictions
Amazon Web Services and Google Cloud Platform are third-party clouds from Microsoft’s perspective, and Microsoft’s licensing policies have been (in)famously restrictive for using certain licenses on these platforms:
- License Mobility through Software Assurance: Microsoft has a program that allows certain server products, such as SQL Server, Exchange, SharePoint, etc., to be moved to third-party shared cloud infrastructure, provided you have active Software Assurance on those licenses. This is how you BYOL for products like SQL Server on AWS/GCP. You must ensure the product is eligible for License Mobility (listed in Microsoft’s Product Terms), maintain SA, and you often have to submit a verification form to Microsoft when you do this on AWS/GCP. Notably, Windows Server is not eligible for License Mobility under normal circumstances.
- Windows Server on AWS/GCP: This is where it gets tricky. 2019 Microsoft changed its terms to prevent customers from bringing their perpetual Windows Server licenses to AWS, GCP, Alibaba, or other “Listed Providers” unless they were on dedicated hardware. Essentially, suppose you want to run Windows Server on AWS/GCP. In that case, you have two main options: (1) Use the cloud provider’s license-included (pay-as-you-go) Windows Server VMs, or (2) use BYOL but on AWS/GCP’s dedicated host offerings (which give you sole tenancy of physical servers). There was grandfathering: if you owned licenses pre-October 2019 with SA, you might retain some rights, but generally, new licenses can’t be deployed on shared multitenant AWS/GCP hardware. Most AWS/GCP users use the license-included AMIs for Windows Server for practical purposes. Using dedicated hosts, you can use BYOL Windows Server Datacenter licenses to cover all the cores and then run multiple Windows VMs on that host.
- SQL Server on AWS/GCP: SQL Server can be BYOL on shared infrastructure if you have SA (thanks to License Mobility). AWS, for example, even has a large catalog of “BYOL AMIs” for SQL Server, where you bring your own SQL license and just pay for the Windows VM. If you don’t have SA, or if you’re using SQL Enterprise and want unlimited virtualization on AWS, you would again need dedicated hosts and to license all cores similarly to on-prem. Alternatively, AWS offers SQL Server license-included instances, which might make sense if you lack licenses or want simplicity. Always compare costs – sometimes AWS’s hourly charge for SQL Enterprise is high, and owning licenses could save money if you have them and can use them (with SA).
- Other Microsoft Products, such as SharePoint, Exchange, Dynamics CRM, etc., have complexities. Still, generally, these can be run on VMs in AWS/GCP via License Mobility with SA. Office client applications cannot be BYOL to cloud VMs except under specific programs (e.g., using Office 365 ProPlus on a Windows 10 multi-user VM via Azure only). Microsoft Office on AWS/GCP Windows VMs typically requires you to use Office 365 subscriptions – Microsoft doesn’t allow volume licensed Office to be installed on AWS/GCP unless using dedicated hardware.
Cloud Licensing Pitfalls:
- Double Licensing: A big potential mistake during migration is paying twice for licenses. This can happen if you move a workload to Azure and forget to apply Azure Hybrid Benefit – you end up paying the full VM price, including a Windows license, while also owning unused on-prem licenses. Or on AWS, you might leave a server running with license-included pricing while you have existing licenses that could have been used on a dedicated host. Solution: Inventory your existing licenses before migration and have a clear plan: which ones will be repurposed in the cloud and under what program (AHB, License Mobility, etc.). Ensure your cloud administrators know how to select the BYOL options and deploy them in a way that uses your entitlements. This can save substantially (for example, Azure VMs are ~40-50% cheaper with AHB for Windows/SQL).
- Non-Compliance by Misinterpreting BYOL Rights: Conversely, using licenses in the cloud without proper rights is a compliance risk. Common scenarios: taking Windows Server Standard licenses without SA and deploying them on AWS shared VMs – this is not allowed and would violate terms. Or using Office 365 ProPlus on AWS WorkSpaces (for instance) – Microsoft currently only allows Office 365 ProPlus in a virtual desktop on Azure or on dedicated cloud infrastructure, not on AWS’s multi-tenant Windows environment. These nuances are easy to miss. Solution: Consult Microsoft’s Product Terms for “Outsourcing Software Management” rights or work with licensing experts to confirm what’s permitted. Microsoft introduced the “Listed Providers” concept, which means that AWS, GCP, and Alibaba are more restricted. Others, like smaller hosters, can be eligible if they’re an Authorized Mobility Partner or via the new CSP-hosted options. It’s complex – when in doubt, err on the side of caution or ask Microsoft.
- Not Using Cloud-Native Alternatives Wisely: Sometimes, a direct BYOL of a traditional server product to a cloud VM might not be the optimal approach. For example, instead of running a Windows Server file server VM in Azure (which would require a license or AHB), you might use Azure Files or SharePoint Online, which include necessary licensing in their service fees. Or, rather than hosting a SQL Server VM on AWS, you might use AWS RDS for SQL Server (which includes the SQL license in pricing) – though RDS SQL has its license constraints (it requires a license unless you use their “Custom” offering on dedicated hosts). The pitfall is moving to the cloud but not adjusting the architecture to possibly leverage PaaS services, which simplify licensing. Solution: As part of migration planning, evaluate if cloud-native services could replace some VM workloads and what their cost/licensing model is. Many Azure services, for example, shift you away from managing licenses (you just pay for the service, and Microsoft handles the licenses internally). This can eliminate BYOL headaches for those components.
Read Licensing for Windows Server and SQL Server.
Strategic Considerations: Azure vs AWS/GCP
Microsoft has structured things to make Azure the most attractive destination for existing Microsoft license holders. For instance:
- Azure allows simultaneous use of licenses during migration: With Azure Hybrid Benefit, you have up to 180 days of dual-use rights, meaning you can keep using your on-premises servers while applying the license to Azure during a migration period. AWS/GCP has no such blanket allowance. If you are BYOL, you’re technically supposed to cease using it on-prem (unless you have some temporary SA use rights, but those are primarily an Azure benefit).
- Extended Security Updates (ESUs): Microsoft offers free ESUs for end-of-support products like Windows Server 2012 or SQL Server 2012 if you run them in Azure. On AWS/GCP, you’d have to pay for those ESUs (through Software Assurance or a separate purchase). This can heavily influence costs for legacy server migrations – many organizations moved old Windows 2008 servers to Azure to get extended patch support without extra licensing costs.
- Licensing Outsourcing Benefit (2022 changes): Microsoft, under pressure, introduced a new program via CSP where certain hosting partners (not the big competitors, but smaller cloud providers) can offer your licenses running on shared infrastructure legally, even Windows Server, through something called the “Flexible Virtualization” benefit. AWS and Google are not eligible for the program intended to placate European cloud providers. So, the giants remain under the old restrictions. If AWS/GCP matter to you, be keenly aware of those limitations – for example, if you have an older Windows Server license without SA that you thought you could use on AWS, post-2019, you cannot unless it’s on dedicated hardware.
Practical Tips for Cloud Migrations:
- Inventory and Tag Your Licenses: Before migrating, list what licenses (Windows, SQL, Remote Desktop, etc.) you have, their versions, and whether they have Software Assurance or are subscription-based (like Microsoft 365 E5, which might include certain server rights). This will dictate if and how they can be used in the cloud. For instance, a Windows Server perpetual license without SA can’t be used on AWS shared – you’d plan to retire that and use AWS’s license or move it to Azure, where you can use it on the dedicated host (or add SA via subscription if possible).
- Decide Workload-by-Workload: For each server you plan to migrate, move to IaaS VM or re-platform to PaaS? BYOL or provider license? Azure or AWS? For example, you might move your web application servers to Azure VMs and use AHB for Windows, but your Oracle database servers might go to AWS. Or you keep some workloads on-prem, and some in the cloud. Each decision may involve different licensing approaches. Create a matrix or plan that covers this.
- Take Advantage of Transition Periods: Microsoft permits some overlapping use of licenses when transitioning to the cloud (especially with SA). Use that to avoid downtime – spin up your cloud instances using AHB while you still run on-prem during testing. Remember to properly retire the on-prem use after the 180-day limit (if applicable) unless you purchase additional licenses.
- Cost Out the Scenarios: It’s not just about compliance – it’s also about cost optimization. Sometimes buying new licenses via a cloud subscription model is cheaper in the long run than porting a very expensive legacy license. For example, if you have an expired SQL Server Enterprise license with SA, compare renewing SA (to use it in AWS) vs. using AWS’s license-included pricing vs. potentially using Azure, where you might get discounts. Similarly, analyze Windows Server Datacenter on-prem with Azure Hybrid vs. just using Azure’s included pricing – one wins out at certain VM usage levels. Utilize pricing calculators from Azure and AWS and factor in your existing entitlements.
- Monitor and Adjust: Cloud environments are dynamic – you might spin up new VMs or use new services over time. Make license governance part of your cloud management. For instance, if your team creates an AWS VM from a generic Windows image, ensure there’s a process to decide if it should be converted to BYOL (on the dedicated host) or switched to Azure, etc. A misconfigured deployment could inadvertently violate licensing (e.g., someone uses the AWS import tool to bring a VHD of Windows Server, thinking BYOL is fine on shared infrastructure, when it’s not). Regularly audit your cloud accounts to see what Microsoft software runs and how.
Cloud Migration and Independent Licensing Expertise:
Given the complexity, this is a phase where involving licensing experts can pay dividends. They can:
- Analyze your existing agreements for cloud use benefits (maybe you have an Enterprise Agreement with Azure credits or the ability to exchange some on-prem licenses for cloud ones).
- Ensure you take full advantage of programs like Azure Hybrid Benefit or SQL License Mobility and fill out any necessary paperwork (AWS requires a License Mobility verification signed by Microsoft for BYOL SQL, for example).
- Advise on subtler points, like how to license a multi-tenant SaaS you’re building on Azure (where maybe an ISV licensing program is needed) or how to cover dev/test environments in the cloud (note: Visual Studio subscriptions can be used to spin up dev/test Azure VMs under a Dev/Test offer).
- They can also forecast the cost implications of different cloud vendors, considering license needs. Many organizations ultimately choose a primary cloud provider in part due to licensing economics—e.g., “We went with Azure for our Windows/SQL workloads because our EA and Hybrid Benefits made it 30% cheaper than AWS for those.”
Conclusion: Migrating Microsoft workloads to Azure, AWS, or GCP is not just a technical exercise but a licensing one. Understanding the vendor-specific rules ensures you don’t accidentally run afoul of Microsoft’s terms or miss out on significant savings. Azure offers the most license flexibility for Microsoft products. At the same time, AWS and Google require careful navigation of BYOL rules (often necessitating Software Assurance or dedicated hosts for full benefit).
Before any migration, do a thorough license assessment as part of your cloud readiness checklist. When executed with licensing in mind, cloud migration can optimize your IT operations and software licensing costs, allowing you to modernize without paying more than necessary.
Keep compliance a priority, leverage the programs designed to help (Hybrid Benefit, License Mobility), and you’ll be able to migrate to the cloud with confidence and fiscal prudence.
